1031 Exchange & DST Investing in Virginia
Virginia conforms to federal Section 1031, so a valid exchange defers its 5.75% top state income tax on real property gains. Northern Virginia, Richmond, and Hampton Roads attract steady 1031 replacement capital.
State tax treatment of a 1031 exchange
Virginia conforms to the federal like-kind exchange rules under Section 1031, so gain deferred federally on investment or business real property is deferred for Virginia income tax as well, with carryover basis into the replacement property. Virginia's top marginal individual income tax rate is 5.75%, which applies to capital gains since the state provides no preferential capital gains rate for most real estate.
A properly structured 1031 exchange postpones that state tax along with the federal tax until a future taxable disposition of the replacement property. Investors should coordinate the exchange through a qualified intermediary to preserve Virginia and federal deferral.
Market snapshot
Virginia's investment markets are led by Northern Virginia (the Washington, D.C. suburbs), Richmond, and Hampton Roads around Norfolk and Virginia Beach. Northern Virginia hosts one of the world's largest data center clusters, and the region's federal, defense, and technology economy drives durable office, industrial, and multifamily demand.
Data centers, multifamily, industrial, and single-family rentals lead investor interest, complemented by port-driven logistics in Hampton Roads. Stable, high-income employment and strong housing demand draw 1031 replacement capital seeking resilient, long-term markets.
Why 1031 & DST investors look here
- Virginia conforms to Section 1031, deferring its 5.75% top state tax on qualifying exchanges.
- Northern Virginia's data center and defense economy anchors durable, high-income demand.
- No state nonresident real estate withholding keeps closings straightforward for out-of-state sellers.
Replacement-property options
Virginia investors can exchange into Delaware Statutory Trust (DST) interests for passive, professionally managed real estate, contribute into an UPREIT through a 721 exchange, or invest gains in Qualified Opportunity Zone funds. Replacement property does not need to be located in Virginia; a DST can hold assets across multiple states, letting investors diversify while meeting the like-kind requirement.
Frequently asked questions
Does Virginia tax a 1031 exchange?
Not at the time of a valid exchange. Virginia conforms to federal Section 1031, so gain deferred federally is deferred for its income tax until a future taxable sale.
Can I exchange Virginia property for out-of-state DSTs?
Yes. Replacement property does not have to be in Virginia, and DST interests holding real estate in other states can qualify as like-kind.
Does Virginia withhold tax when a nonresident sells real estate?
Virginia does not impose a dedicated nonresident real estate withholding at closing, though nonresident sellers still report Virginia-source gain on a state return.
Gerald F. “Jerry” Baker, III — Founder & Managing Principal, Baker 1031 Investments · FINRA Series 22 / 63 · SIE. Read full bio →
State tax treatment is general and changes frequently; this page is educational and is not tax, legal, or investment advice. Confirm current state and local rules with your own CPA and attorney. Securities offered through Aurora Securities, member FINRA/SIPC. Real estate investments involve risk, including possible loss of principal.